MercoPress. South Atlantic News Agency

European leaders criticize risk-rating agencies for downgrading Greek debt

European Economic and Monetary Affairs Commissioner Olli Rehn

Moody's decision to downgrade Greek debt was ill-advised and ill-timed, European Economic and Monetary Affairs Commissioner Olli Rehn said, adding that it cast fresh doubt on risk-ratings agencies.

Rehn said the downgrade had not taken into account latest developments in Greece, with Athens recently agreeing to budget austerity in return for a massive bailout from the European Union and the IMF.

“Moody's decision came at quite an astonishing and unfortunate moment,” Rehn said during a debate in the European parliament.

Moody's on Monday cut Greek government bond ratings four notches to Ba1 from A3, the second ratings agency to shift the country’s credit to non-investment grade and catching up with previous downgrades by other agencies.

”Moody's decision does not in anyway take into account Greek commitments or the negative consequences, which were considerably reduced following the adoption of the (bailout) program,“ Rehn said.

He added that he had discussed the matter with EU Commission President Jose Manuel Barroso and Internal Markets Commissioner Michel Barnier, saying that the move ”revived the debate over the issue of ratings agencies“.

”The Commission is going to look into the question of competition in this sector, where there is a very strong concentration (of players). We are also going to look into transparency in the methodology and the question of conflict of interest,“ he added.

Financial markets have overreacted to the Euro area's sovereign debt problems, though they are likely to keep testing the region's commitment to the single currency, credit rating agency Fitch said.

”The knock-on has gone a bit too far,“ Fitch sovereign credit analyst Brian Coulton said of the crisis that has spread from Greece to other euro zone periphery countries and raised questions about the viability of the currency bloc.

Portugal, Spain, Ireland and even Italy have been swept along with market fears about surging deficit and debt levels. But they are in qualitatively different position to Greece, having already taken tough policy decisions in response to the crisis, Coulton said.

”A lot of problems in Greece are specific to Greece,“ Coulton told reporters on the sidelines of a financial conference.

Many euro area politicians, particularly those from the southern European states worst affected by the market ructions, have blamed credit rating agencies for contributing to the sovereign crisis with downgrades that appeared to ignore government and international efforts to bring state finances back into line.

Fitch currently rates Greece at BBB-, the lowest investment-grade level, with a negative outlook, which implies more than 50% possibility of a downgrade. It has no plans to cut Greece's debt to non-investment grade in the immediate future, it said yesterday, after Moody's cut Greek sovereign debt to junk status.

Fitch also has a negative outlook on Portugal but mainly due to worries over the economic outlook rather than policy, Coulton said. Ireland and Spain have stable outlooks.

”There could be further volatility,” Coulton said, adding that he considered the risk of a break-up of the Euro area in the short to medium term to be remote.